S&P Global Ratings has upgraded its issuer credit rating on Willis Towers Watson PLC (WTW) to ‘BBB+’ from ‘BBB’ and gave it a stable outlook.
At the same time the credit rating agency upgraded its issue-level ratings on the global brokerage firm’s senior unsecured debt to ‘BBB+’ from ‘BBB’.
WTW has sustained more conservative leverage and financial policy over the last year while its operating performance has stabilised, which resulted in S&P upgrading the brokers credit ratings.
Additionally, according to the rating agency, the stable outlook reflects S&P’s view that WTW will continue to demonstrate growth and performance momentum while operating within credit measures commensurate with the rating.
“The improving organic trend demonstrates the company is making headway on its growth strategies and moving past the high client and producer attrition that occurred when its planned merger with Aon was announced and subsequently terminated,” S&P said.
“While WTW (like peers) benefitted from favourable insurance pricing and above-trend inflation, its growth was also supported by its accelerated hiring, normalising employee attrition rates that are consistent with macro trends, improved client retention and new business wins, and traction on various new products and platforms.”
WTW is looking to improve its calculated adjusted operating margins by several hundred basis points through 2024, through various operational improvements like enhanced common global platforms, right-shoring operations, real estate rationalisation, and technology modernization.
S&P noted that the firm has begun to realise incremental savings from these initiatives and has improved adjusted operating margins by 100 basis points per its calculations in 2022.
“But S&P Global-adjusted EBITDA margins have contracted by about 200 basis points to around 24% for full-year 2022, in line with our expectations, given elevated costs to achieve the company’s savings plans (which the company adds back in its margin calculations, but we do not), along with increased producer investment incurred to bolster organic growth,” the rating agency added.
Concluding: “We expect the company to continue to make headway on its margin improvement goals in 2023, though our calculated margins will continue to be weighed down as the company incurs the bulk of the remaining restructuring and transformation costs this year.”
